India: Relaxation On Permitted End-Uses Under The ECB Framework For Corporates And NBFCs

1. INTRODUCTION

Under the previous regulatory framework for external commercial
borrowing ("ECB"), the borrowers were
restricted from using the ECB for: (a) real estate activities; (b)
investment in capital market; (c) equity investments; (d) repayment
of Rupee loans (unless received from a foreign equity holder); (e)
working capital purposes and general corporate purposes (unless
received from a foreign equity holder); and (f) on-lending for such
activities.

Earlier this year, through an amendment to the ECB
guidelines1, all entities permitted to avail foreign
direct investment ("FDI") under 100%
automatic route were also permitted to avail ECB and the start-ups
were exempted from the end-use restrictions mentioned above, thus
improving the ease of doing business and boosting the ECBs in
India.

In continuation of its efforts to simplify the extant regime for
ECB and make it more accessible, the Reserve Bank of India
("RBI") has issued a
circular2 dated July 30, 2019 wherein it has relaxed the
end-use restrictions for corporates and non-banking financial
companies ("NBFCs"), by permitting the
use of ECB proceeds for working capital requirements, general
corporate purposes, repayment of Rupee loans and on-lending for
such purposes.

2. CHANGES

As per the extant framework, the eligible borrowers are (i) all
entities eligible to receive FDI; (ii) Port Trusts; (iii) Units in
Special Economic Zones; (iv) Small Industries Development Bank of
India; (v) Export-Import Bank of India; and (vi) registered
entities engaged in micro-finance activities, such as registered
not-for-profit companies, registered societies, trusts,
cooperatives and non-governmental organizations (permitted only to
raise Indian Rupee denominated ECB). The RBI has now permitted them
to raise ECB for the following purposes from the recognized
lenders, except foreign branches or overseas subsidiaries of Indian
banks, subject to the limit and leverage
requirements3:

2.1. ECBs for working capital purposes and general corporate
purposes

Eligible borrowers can now raise ECB with a minimum average
maturity period ("MAMP") of 10 years for
working capital purposes and general corporate purposes.

NBFCs can now on-lend their ECB borrowings with MAMP of 10 years
for working capital purposes and general corporate purposes.

Eligible borrowers can now raise ECBs with a MAMP of 7 years for
repayment of Rupee loans availed domestically for capital
expenditure and similarly NBFCs can raise ECBs with a MAMP of 7
years for repayment of Rupee loans availed domestically for capital
expenditure for on-lending.

However, for repayment of Rupee loans availed domestically by
eligible borrowers or NBFCs for purposes other than capital
expenditure, the MAMP is mandated to be 10 years.

Eligible borrowers are also allowed to raise ECB for repayment
of Rupee loans availed domestically for capital expenditure in
manufacturing and infrastructure sector if such is classified as a
special mention account 2 (that is, a loan or an advance where the
principal or the interest payment is overdue between 61-90 days) or
a non-performing asset (that is, a loan or an advance where the
principal or the interest payment has remained overdue for a period
of 90 days), under any one time settlement with the lenders.

Lender banks are permitted to sell such loans to the eligible
lenders except foreign branches or overseas subsidiaries of Indian
banks, subject to the condition that an eligible lender must comply
with the ECB guidelines such as those related to all-in-cost and
MAMP, amongst other applicable terms of the ECB framework.

3. INDUSLAW VIEW

The relaxation to use the ECB proceeds for working capital
purposes and general corporate purposes coupled with the
liberalization of the ECB framework earlier this year certainly
provides the eligible borrowers with an alternative source of
funding for meeting its working capital requirements.

The change may become a preferred option for availing bridge
financing, as opposed to equity financing or domestic debt
financing, which were earlier the only available options to meet
the working capital requirement.

Further, this move will also provide the much-needed support to
the struggling NBFC sector as it will allow access to fresh capital
for NBFCs and will help in easing out the liquidity crunch that
NBFCs in the country have been facing in recent times.

3. Limit and leverage: All eligible
borrowers can raise ECB up to USD 750 million or equivalent per
financial year under auto route. Further, in case of FCY
denominated ECB raised from direct foreign equity holder, ECB
liability-equity ratio for ECBs raised under the automatic route
cannot exceed 7:1. However, this ratio will not be applicable if
outstanding amount of all ECBs, including proposed one, is up to
USD 5 million or equivalent. Further, the borrowing entities will
also be governed by the guidelines on debt equity ratio issued, if
any, by the sectoral or prudential regulator concerned.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

The Supreme Court of India in the case of Adani Power (Mundra) Limited v. Gujarat Electricity Regulatory Commission (decided on July 2, 2019) held that courts can imply terms in a contract only when literal interpretation fails, ...

The Hon'ble Supreme Court (SC), in its recent decision in the matter of M/s Hindon Forge Pvt. Ltd. & Anr. v State of Uttar Pradesh [(Civil Appeal No 10873 of 2018 along with Civil Appeal No 10874 of 2018)] ...

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.

To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access

No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq

No, please do not send me promotional communications from Mondaq

Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions